What India can teach the U.S. about driving down the cost of health care

At Narayana Health in Bangalore, India, a typical heart surgery costs thousands of dollars less than it would in the U.S., and the hospital performs 60 percent of pediatric surgeries free or at a discounted price to those who can't pay.Aijaz Rahi/AP

With the Affordable Care Act under attack and all eyes on Dr. Atul Gawande as he starts this week as CEO of the new Amazon, JPMorgan, and Berkshire Hathaway venture, health care in the United States is more top of mind than ever. Surprisingly, a solution to reducing costs without government intervention and without reducing quality might be found in an unlikely place: India.

We have visited more than two dozen hospitals and interviewed more than 125 executives across India and the U.S. We learned that some of the most proactive hospitals in the West are adopting the world-class innovations of Indian health care institutions in order to boost quality, lower costs, and expand access to the underserved — goals that have eluded U.S. policy makers for decades.

This trend — which we call “reverse innovation” because the health care innovations flow from a poor country to a wealthier one rather than the other way around — may come as a surprise to many Americans. After all, the U.S. is home to the world’s best hospitals, best doctors, best research, and most innovative medical device companies. Americans choose their own doctors and don’t have to deal with care rationing or long waiting lines for procedures.

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But in 2016, the last year for which there are complete data, the United States spent $3.3 trillion, or almost 17.9 percent of its gross domestic product, on health care. That’s $10,348 per person, at least twice as much as any other country in the industrialized world. Yet the U.S. was ranked last among 11 industrialized nations for overall health care performance in a 2017 Commonwealth Fund report.

Why hasn’t the U.S. been able to find solutions in Washington? Because inside the Beltway, the health care debate isn’t really about health care — it’s about money and who has to cover the costs of health care. At the center of this debate are the poor and uninsured, who have long been used as scapegoats for their illnesses and inability to pay.

What we found through our research on Indian health care institutions is that the poor and uninsured actually represent a huge source of untapped value and transformation. In India, poverty has driven a handful of private Indian hospitals to pursue breakthrough innovations in health care delivery that let them provide medical services on par with the best U.S. hospitals for a fraction of U.S. prices. What’s more, they often give away care to those who can’t afford even their minimal prices. Remarkably, these organizations are also making enough money to attract investors from around the world.

At Narayana Health, a private for-profit cardiac hospital system based in Bangalore, a typical heart surgery costs about $2,100 — that’s tens of thousands of dollars less than the same procedure would cost in the U.S. — and the 30-day mortality rate for coronary-bypass procedures is 1.4 percent, lower than the U.S. rate of 1.9 percent. The hospital performs 60 percent of pediatric surgeries free or at a discounted price to those who can’t pay.

Even as it gives so much away, Narayana has made enough money to push its December 2017 market valuation over $1 billion.

Another Indian health care provider, Aravind Eye Care System, has given free or highly subsidized eye surgery to roughly 3 million people, or more than half of its surgical patients, with few surgical complications. Remarkably, Aravind has covered all of its operating costs and capital expansions from operating surpluses for 40 years.

How do they do it? If you think it’s all about lower salaries, you’d be wrong. The salaries of nurses, paramedical staff, and administrators in India are dramatically lower than in the U.S., but even if all the doctors and staff at Narayana Health were paid at U.S. levels, its costs for open-heart surgery would still be only 3 percent to 12 percent the cost in the U.S. Moreover, the cost of imported supplies and high-end equipment, as well as land and capital, can be significantly higher in India than in the U.S.

So how do they do it? These Indian hospitals cut costs to bone, inspired by their purpose of providing care to the greatest number possible. They practice telemedicine and use technology strategically. They are experts at task shifting, delegating less-specialized work to lower-paid staff. They reuse supplies when it’s safe to do so and manufacture others that are too expensive to buy. They use generic drugs. And with a tremendous volume of patients, they have become masters of efficiency. At Aravind, surgeons positioned between two surgical stations perform five or six cataract surgeries per hour, compared to one per hour in the U.S.

Clearly, the Indian health care industry has some innovation-friendly advantages that are not available in the U.S. It’s less fettered by regulation than the U.S. industry, and it is relatively free of entrenched hindrances like our fee-for-service reimbursement model or powerful insurance and pharmaceutical lobbies. But the U.S. doesn’t need to implement all of the strategies that India can. Embracing even a few of these innovations could drastically reduce the cost of American health care.

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Perhaps the most revealing finding is not how these Indian hospitals do what they do, but why they do it. Each of these hospitals shares a deep commitment to the idea that health care is a human right. That commitment starts at the top of the organizations, with the founders, and runs throughout the whole, putting the poor and uninsured at the center of the enterprise. That’s a commitment our leaders can make right away.

Could Indian health care innovations solve the U.S. health care crisis? Some of the Indian innovations could work in U.S. hospitals right away; others don’t have a prayer. But India has shown that promising solutions for low-cost, high-quality health care exist. By focusing on the crisis of health care delivery — rather than on who pays for what — the U.S. can save more lives, and perhaps even make money while doing so.

Vijay Govindarajan is professor of innovation at Dartmouth’s Tuck School of Business and a former Marvin Bower Fellow at Harvard Business School. Ravi Ramamurti is professor of international business and strategy at Northeastern University’s D’Amore-McKim School of Business and director of the Center for Emerging Markets. Their new book is “Reverse Innovation in Health Care: How to Make Value-Based Delivery Work” (Harvard Business Review Press, July 2018).